San Francisco Frontiers - Rating agencies doubt France's target to cut massive debt

Moody's maintained France's sovereign rating at "Aa2" with a stable outlook. Fitch, which downgraded its rating for France last year, left it unchanged at "AA-" with a stable outlook.

France's public deficit widened to 5.5 percent of GDP in 2023, overshooting the government’s 4.9 percent target. And with the debt stock equal to 110.6 percent of GDP, France has the third highest debt ratio in the European Union after Greece and Italy.

The government has set a target of bringing debt below 3.0 percent of GDP by 2027. But both agencies cast doubts.

Moody's said it was "unlikely" that France will hit its deficit target of 2.9 percent in 2027. "Progress in sustainably reducing the budget deficit and government debt is limited," it said in a commentary.

The agency predicted that debt could reach "almost 115 percent of GDP by 2027".

"France's interest burden will gradually rise and could double over the next decade if the debt level does not materially decline," it added.

Fitch said "it will be difficult to achieve this target as deficit narrowing measures remain largely unspecified, France has only met the 3 percent deficit criterion in four out of the last 20 years."

French Finance Minister Bruno Le Maire said in a statement that the agencies' decisions should "encourage us to redouble our determination to restore our public finances and meet the objective" of getting debt below 3.0 percent in 2027.

"We will keep to our strategy based on growth and full employment, structural reforms and the reduction of public spending," he added.

France lost its triple-A rating in 2012, though double-A still implies only a minimal chance of a default.

"France's ratings are supported by its wealthy and diversified economy with supportive demographic trends," Moody's said.

"Structural reforms have started to address credit challenges such as high unemployment and weakening competitiveness."

B.Ramirez--SFF